Spin Master Q4 Profit Rises

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Spin Master’s net income in Q4 ended December 31 soared to $20 million from $2.7 million, driven by a 30.3% revenue increase to $440.9 million, led by strong sales of Hatchimals and Luvabella. Other revenue, which includes royalties and app sales tied to Sago Mini and Toca Boca, more than tripled to $30.3 million.

“In 2017 we continued to expand and develop our capabilities in the entertainment and content area,” said Co-CEO Ronnen Harary. “This drove strong revenue growth as well as growth in our licensing and merchandising revenue. We have continued to build our entertainment team and are now poised to further develop our core franchises including Paw Patrol and Rusty Rivets as well as introduce exciting new content in 2018 and 2019, including Abby Hatcher: Fuzzly Catcherand the relaunch of Bakugan.”

The sharp gain in net income came despite a $2.5 million intangible asset impairment charge for licenses, brands and trademarks (largely related to its Spy Gear toys) and $327,000 in costs tied to changes in a company restructure.

Revenue from RC and interactive toys more than doubled to $198.7 million on strong sales of Hatchimals and Luvabella, which offset declines in Air Hogs and Zoomer products.

In the pre-school and girls category, revenue dropped 18.2% to $102.4 million amid declines in Paw Patrol, Powerpuff Girls and Brightlings products. The downturn in Paw Patrol sales was largely tied to timing of shipments to retailers -in Q1 2018 for the spring versus Q4 the previous year – and the property continues to generate “solid business,” Spin Master President Ben Gadbois said. A fifth season of Paw Patrol launched on Nickelodeon in February.

Paw Patrol and Hatchimals each account for about 25% of Spin Master’s annual revenue, company executives said.

Activity products, games and puzzles, which include Cardinal Games, rose 20% to $138.5 million, while the boys action and construction business increased 5% to $36.7 million, bolstered by sales of Star Wars products. Spin Master’s proposed $79 million acquisition of Gund from Enesco (Inside Licensing March 5), which is scheduled to close in April, will add about $65 million in annual revenue.

Gund will expand Spin Master’s distribution in gift stores and give the company a ready source for products for new Spin Master-produced TV series, company executive said. For example, Gund will develop plush for the “Abby Hatcher, Fuzzly Catcher” program due on Nickelodeon later this year. Spin Master, which generates about 35% of its sales outside North America, aims to have Gund reach that same ratio; it currently stands at 20%, said CFO Mark Segal said.

“We are seeing the results of our efforts to increase sales in existing and new markets. International sales continued to grow and our new direct markets in Australia, China and Central and Eastern Europe, exceeded our expectations,” Gadbois said.

For the year, the company said gross product sales increased 32.1% to $1.6 billion.

Annual sales of Pirates of the Caribbean-related products fell short of 2017 forecasts and Star Wars items, including a Hero Droid BB8 interactive toy, generated limited revenue, Gadbois said. “We don’t see it (Star Wars) as a long term driver” of Spin Master sales, but “we will make product where we can do so” with a profit, he said. Spin Master’s annual net income jumped 61.9% to $161.1 million

Spin Master says it’s nearing a carriage agreement for Bakugan, which last aired in 2013, and also is weighing plans for a film, Gadbois said.